After the Rulings, What Now?

As expected, Federal Judge Eldon Fallon has ruled in favor
of the plaintiffs in a case against defective Chinese drywall
manufacturer Knauf Plasterboard Tianjin. Fallon awarded the
plaintiffs, Tatum and Charlene Hernandez of Mandeville,
Louisiana, $164,049.64 in damages, plus attorney and legal
costs in the case. In a comprehensive finding of fact and law,
the judge ordered a full remediation of the Hernandez home,
which he said must include removal and replacement of all the
drywall in the home, as well as the entire electrical system,
plumbing, hvac system, possibly the flooring, and any cabinetry
or other components that block access to the defective
drywall.
The ruling echoes a similar ruling in the previous
"bellwether" case decided by Judge Fallon last month against
Chinese firm Taishan Gypsum. And the findings of fact and law
will be applied to all similar cases brought into the New
Orleans Federal court as part of the "Multi-District
Litigation," over which Judge Fallon presides. But considerable
doubt remains about whether, and when, homeowners or builders
may be able to collect any damages in the complicated
class-action suits.
Taishan Gypsum, a Chinese firm controlled by the government
of the People's Republic of China, will be particularly hard to
reach, experts say. Seattle-based international lawyer Dan
Harris blogged, "Chinese courts do not enforce U.S. court
awards against Chinese companies. They just don't. Period.
Therefore, this judgment is almost certainly worthless." And
Harris said any effort to seize shipments of Taishan-produced
goods in transit or in port would be hard to justify
("
Chinese Drywall Plaintiffs Get U.S. Court Judgment Against
Chinese Company. Yawn." by
Dan Harris). But he held out at least some faint hope that
Taishan assets in some third country that recognizes U.S. law
(such as South Korea) might be vulnerable to seizure.
Plaintiffs who win judgments against Knauf Plasterboard
Tianjin, however, may be in a better position. The German-based
parent company, Knauf GIPS, has substantial assets in the
United States, and extensive ongoing sales of a wide range of
products. And according to a report in the South Florida
Business Journal, the court has already seen evidence that
Knauf's top management knew of complaints concerning Chinese
drywall odors as far back as 2006, and was personally involved
in subsequent decisions
("
Importer explains how he sourced Chinese drywall," by Paul
Brinkmann).
Reports the Business Journal: "The German owners of global
conglomerate Knauf Group were aware of problems with
high-sulfur Chinese drywall made at its subsidiary, Knauf
Plasterboard Tianjin, as early as 2006, according to the
October deposition of a North Miami importer." That's according
to a deposition from Salomon Homsany Abadi, who ran the South
Florida importing firm La Suprema Enterprise. Abadi testified
that a German executive came to Florida to investigate
complaints of bad odors caused by Chinese drywall in 2006, and
reported back directly to "Mr. Knauf" in Germany.
"Mr. Knauf" — described by Abadi as "the orchestra
director" — was not identified by first name in the
deposition, reports the Business Journal, but the company is
run by two cousins named Baldwin Knauf and Nikolaus Knauf.
According to Coral Gables, Florida, attorney Ervin Gonzalez,
Adabi's story "shows Germany was involved in the operations of
Knauf Tianjin, and that opens up the possibility of including
the parent company in the lawsuit at some point.”
Ever since the Chinese drywall story broke in early 2009,
Knauf spokespeople have maintained that Knauf Plasterboard
Tianjin operates separately from Knauf GIPS. But the Abadi
deposition bears out the confidence of attorneys such as Jordan
Chaikin, from the law firm of Parker Waichman Alonso LLP, who
told
Coastal
Connection in March of 2009, "We believe that there is
going to be insurance money there, and they are going to be
very able to pay. The parent company, Knauf, they manufacture
more building supplies than anybody in the world, and they've
got plants all around — they are huge. We don't
believe collectibility and ability to pay and all that is going
to be an issue at all."
(
Listen to audio)
Payment may take time, however — and meanwhile,
homeowners and builders have to deal with their current
difficulties. They may also have to make a choice between
accepting a settlement in the short run, or holding out for an
unknown length of time in hopes of a better payout. According
to a report in the Bradenton Herald, Knauf Tianjin
representatives have already approached one Florida builder
with a compromise offer
("
Settlement sought in drywall case," By Duane Marsteller).
But according to the paper, builder Lee Wetherington described
the offer as too low to be worth considering, saying, "It
didn't even come close. I've got attorneys handling this, so
I'm going to let them do their thing."
Meanwhile, mortgage lenders Fannie Mae and Freddie Mac have
granted some temporary relief to the Virginia homeowners who
won last month's Federal court decision. And lawmakers are
asking for the same kind of help for afflicted Florida
homeowners, reports the Sarasota Herald-Tribune
("
Senators seek mortgage hiatus for homes with Chinese
drywall," by Aaron Kessler). "Florida Sens. Bill Nelson, a
Democrat, and George LeMieux, a Republican, and Sen. Mary
Landrieu, D-La., wrote a pair of letters Wednesday asking for
the assistance for Florida and Louisiana victims," reports the
Herald-Tribune. "Last week, Fannie Mae waived mortgage payments
for the Virginia homeowners in response to a request from U.S.
Sen. Mark Warner, D-Va."
And in the U.S. House of Representatives, a "House
Contaminated Drywall Caucus" has been meeting with Federal
officials to look for immediate solutions for homeowners
struggling to cope with the situation. Among the Congressional
group: the daughter of two retired Florida residents who are
stuck living in a home with the contaminated drywall —
complete with foul odors and failing appliances. The Fort Myers
News-Press has that story
("
In U.S. House, the daughter of a Cape Coral couple tries for
drywall help," by Denes Husty and Bart Jansen).
In Louisiana, meanwhile, state lawmakers are pushing to make
sure that insurance companies can't drop homeowners' policies
just because Chinese drywall has been found in the home,
reports the Insurance Journal
("
Louisiana Bill Would Ban Insurance Cancellations Due to Chinese
Drywall," by Melinda Deslatte). "The bill by Sen. Julie
Quinn, R-Metairie, would bar property insurers from canceling,
refusing to renew, or increasing premiums or deductibles
because of Chinese drywall at a property," the Insurance
Journal reports.
Senator Quinn's bill does not require insurance companies to
compensate the victims — only to continue coverage on
the properties. However, a Louisiana state district court has
removed at least one barrier to homeowners seeking insurance
payouts for the drywall problem, the Insurance Journal reported
March 30
("
Louisiana Court: Policy Exclusions Can't Be Used to Deny
Drywall Claims"). Judge Lloyd J. Medley
ruled
in the Louisiana case that the pollution exclusion written
into most homeowners policies "does not, and was never
intended, to apply to residential homeowners claims for damages
caused by substandard building materials." This does not settle
whether the homeowners in that case, Simon and Rebecca Finger,
will receive any relief. But it is a sign of hope for
homeowners and builders that, until such time as drywall makers
can be held accountable, insurance companies may step in to pay
for making the damaged homes livable again.